Loyalty Program Gives Pizza Hut Better Slice of the Pie

ATLANTA -- Pizza Hut Inc. is getting a bigger piece of the pizza market, thanks to a loyalty program it began two years ago.

The fee-based program called VIP: Very Into Pizza has increased the company's incremental orders by 93 percent from members over a matched control and raised incremental net sales 65 percent. The program was discussed at a session at DMA·05 here yesterday.

Pizza Hut, Dallas, a subsidiary of Yum Brands Inc., launched the loyalty program because customers were switching among Pizza Hut, Dominos and Papa John's looking for quality product, service and value.

"With sales deterioration category-wide, Pizza Hut realized it had to retain and reward its best customers," said Nagwa Pfingston, vice president and account director at Dallas-based Hawkeye/FFWD, the agency Pizza Hut worked with to start the program. At the time of the program's launch, Pfingston worked for Pizza Hut.

Pizza Hut knew that even a small shift in share among better customers generates large incremental profits, Pfingston said.

The company did research to prepare the program. Pfingston said that Pizza Hut looked at other loyalty programs in the space, "but we had yet to find one that was compelling to customers and also cost-effective."

The company gathered insight to identify customer behavior patterns. It interviewed Pizza Hut customers, reviewed existing research, built an analytic data mart based upon 5 million customers and performed a customer potential analysis. The company was in a unique position to gather customer data because, unlike its competitors, a large majority of its customers order via phone or online, so the company had customer data to work with.

From these learnings, Pizza Hut segmented customers into three groups: best customers, customers with potential to become best customers, and customers who switch often versus those who simply have low frequency. The company tested loyalty programs targeting these customers in three markets but received the best results from the fee-based program.

The program costs $14.99 yearly to join, and members get their first large pizza free. Other benefits include receiving a free pizza during the month when spending amounts are reached, free breadsticks and cinnamon sticks every month, and relevant coupons mailed to members monthly based on past behaviors.

To communicate the program, Pizza Hut uses direct mail, e-mail, Web sites and in-store promotions. Before the launch, it also developed call center training guides, quick reference guides and Web-based customer enrollment tools. It acquired and installed call center equipment and developed its database to manage customer targeting, order taking and reward fulfillment.

The company monitors the program weekly and studies customer behavior changes.

Pizza Hut's program is a success for both its best customers and other customers as well.

"While VIP grew our best customers by 300 percent, there was a 65 percent increase in spending across all of our segments as a result of the program," said Kira Lewis, manager, loyalty and data insights at Pizza Hut.

The program is evolving, Lewis said. This year Pizza Hut launched new creative, and it is testing different offers.

The fee is a key component. Paul Bowman, managing director, direct and loyalty marketing at Hawkeye/FFWD, said that Pizza Hut initially did not want a fee-based program.

"They thought, 'Why are we going to ask our best customers to pay to be in our program?' " he said. "But we explained to them that if customers pay, then they change their behavior."

Bowman also told the packed audience at the session three mistakes that many companies make when developing their first loyalty programs:

· They design their program for average customers as opposed to best customers.

· They choose a loyalty program model before researching loyalty drivers.

· They do not create an opportunity loss for defection, such as alerting members that they lose points or miles if they leave the program.

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